The Work

September 16, 2010 11:29 AM

Jones Day Joins Tribune Bankruptcy Fray

Posted by Zach Lowe

There is apparently no stopping the flood of law firms into the Tribune Co. bankruptcy case. Last week the U.S. trustee overseeing the case objected to the company's request to retain Jones Day as counsel for a special committee of four independent Tribune directors, arguing the firm would duplicate the work of Tribune's lead counsel at Sidley Austin, according to court records. 

The trustee lost. Wilmington, Del., U.S. bankruptcy judge Kevin Carey on Wednesday appointed Jones Day over the trustee's objection, saying it was "absolutely the right thing to do," according to Crain's.

The Tribune estate and the independent directors had argued that they needed their own counsel to navigate a path to reorganization that got a lot bumpier last month, after a critical examiner's report reduced creditor support for Tribune's initial plan, according to our prior reporting. That plan would have given partial control of Tribune to senior lenders, including JP Morgan Chase and Merrill Lynch, who financed the 2007 leveraged buyout that sunk the company. Creditor support for the plan fell apart after a court-appointed examiner concluded Tribune's estate might have fraud claims against the company executives and banks that engineered the buyout. 

That sent Tribune back to the drawing board, even as it nears the two-year anniversary of its Chapter 11 filing. The company must propose another plan and deal with possible buyout-related litigation. It set up the committee of independent directors to essentially act as a separate voice in that process. 

Judge Carey made a couple of other important housekeeping decisions Wednesday, Crain's reports. He set an Oct. 22 hearing on a request the creditors committee made last week to sue Sam Zell, Tribune's directors and other higher-ups for fraud related to the buyout. The creditors, represented by Chadbourne & Parke and special litigation counsel at Zuckerman Spaeder, argue in part that Tribune higher-ups should have known the buyout would leave the company insolvent, and that they relied on a faulty solvency report in going forward with the deal, according to court records. 

At least one Tribune creditor has questioned Chadbourne's conduct in the case, and Carey will discuss that creditor's motion to disqualify Chadbourne during a Sept. 22 hearing, Crain's reports. As we reported earlier this week, the investment fund Aurelius Capital Management claims Chadbourne is hopelessly conflicted because of its close relationship with JPMorgan Chase and Citigroup--two of the banks that engineered the buyout and thus might be liable for fraud. Chadbourne declined to comment when we called Monday.

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